FAN & FRED

A WSJ EDITORIAL take note of politics with respect to Fannie Mae and Fredie Mac:

"The MBS portfolios have long been both the chief source of the systemic risk posed by the two mortgage giants and of the profits that so handsomely enriched shareholders and officers alike for decades. Without the extreme leverage inherent in those portfolios -- which the companies borrowed heavily, at taxpayer-subsidized rates, to accumulate -- their federal takeover might never have become necessary.

For years, Mr. Frank and other friends of Fan and Fred opposed not only bills written to limit the size of their portfolios, but any bill that in their view gave an independent regulator too much discretion to order a reduction. This was true of the reform that his House committee passed last year. Only when the White House caved to Mr. Frank and dropped its earlier insistence that a reform bill rein in the portfolios did Mr. Frank move his bill."

I'm not trying to draw attention to the politician under the WSJ's spotlight here. I suppose if the staunch support didn't come from this politician it would have come from another politician. The point I want to draw attention to is that the failures of FAN and FRED have much to do with the failures of government. Check out the entire editorial and note the idea that "taxpayer-subsidized rates" are important parts of the story of these failures.

Congressional Secrecy & Corruption

Email from Senator DeMint:

The Senate will likely vote tomorrow on Sen. DeMint's amendment to the Defense Authorization bill. The amendment strikes Section 1002 that incorporates all of the secret earmarks written in committee reports, giving them the force of law even though they are not in the bill, not debated, not voted on, and not signed into law.

This "incorporation language" must be stopped.

- It effectively reverses the President's Executive Order that Porkbusters pushed him to issue, which aims to stop secret, non-legislative earmarks dead in their tracks.

- It forces agencies to make funding decisions based on the instructions they get from committee staff who author these reports rather than on merit.

- It prevents Congress from debating and voting on earmarks, which is the only true form of transparency and accountability.

- It sets a dangerous precedent that will be repeated if it is not challenged and stopped.

Please also note that the GOP earmark reform task force created by Sen. McConnell recommended that all earmarks be written into our bills. That's what the Constitution requires. The vote tomorrow on DeMint's amendment will test Republican support for this principle.

If the amendment is adopted, the earmarks in the reports will become what Sen. Durbin famously described as just a "note to your sister" and will not be legally binding. Instead, government agencies will be able to spend these taxpayer funds on true national priorities, not special interest politics.

Glenn Reynolds:

If people want appropriations for their pet projects, it seems to me they should have to ask for them publicly, have them reviewed through the usual channels, and have them voted for. Is that asking too much? Apparently. But efforts at putting secret earmarks through are likely to play badly right now, with the federal government already facing financial strain from bailing out corrupt, politically-connected entities like Fannie Mae.

I also notice that the press seemed a bit quicker to pick up on these earmark stories back when the GOP controlled Congress . . . .

I certainly hope earmarking will play badly these days. I think it should be regarded as unconstitutional for Congress to "act" without actually writing legislation for review by all members of Congress, much less by the public. And, if earmarking can't be seen as unconstitutional, then surely secrecy in spending decisions should suggest that our Congress is corrupt.

Earmarks: Senators vs. Governors

There is an article today in the Wall Street Journal about earmarks, and it seems to me the authors either (a) seek to use their article to influence public opinion negatively toward Governor Palin, or (b) they reveal their ignorance of the very matters they choose to report on. Here is how the article begins:

Last week, Republican presidential candidate Sen. John McCain said his running mate, Alaska Gov. Sarah Palin, hadn't sought earmarks or special-interest spending from Congress, presenting her as a fiscal conservative. But state records show Gov. Palin has asked U.S. taxpayers to fund $453 million in specific Alaska projects over the past two years.

These projects include more than $130 million in federal funds that would benefit Alaska's fishing industry and an additional $9 million to help Alaska oil companies. She also has sought $4.5 million to upgrade an airport on a Bering Sea island that has a year-round population of less than 100.

The article begins by noting that the governor of Alaska asked the national government for funding for projects in Alaska. So, who is surprised by this? I suspect many people in Alaska, as well as people in each of the rest of the 50 states, expect this to be part of the normal job responsibilities of their governor. Perhaps the Alaska state legislature was involved in these projects as well.

The article moves on to bring up the controversy over earmarks, and seems to take it for granted that Governor Palin was asking for earmarks:

During an appearance Friday on ABC's "The View," Sen. McCain said Gov. Palin shared his views, and hasn't sought congressional earmarks. "Not as governor she hasn't," he said.

In fact, in the current fiscal year, she is seeking $197 million for 31 projects, the records show. In the prior year, her first year in office, she sought $256 million for dozens more projects ranging from research on rockfish and harbor-seal genetics to rural sanitation and obesity prevention. By comparison, her predecessor, Gov. Frank Murkowski, sought more than $350 million in his last year in office.

Now, I may be a fool, but it seems to me that phrases like "she is seeking" and "she sought" are inaccurate, and quite possibly intentionally chosen to distort. It seems to me that Governor Palin was not acting for herself, but instead, that she was carrying out her duties as governor of "the great state of Alaska." In other words, it was the state of Alaska that was seeking funds from the national government for "projects ranging from research on rockfish and harbor-seal genetics etc."

The article ends by noting the McCain campaign, including Governor Palin, has been critical of Senator Obama's record with respect to earmarks:

On the campaign trail, Gov. Palin has repeatedly attacked Sen. Obama on earmarks. "Our opponent has requested nearly one billion dollars in earmarks in three years. That's about a million for every working day," she said at a rally in Albuquerque, N.M.

Sen. Barack Obama requested a total of $860 million in earmarks in his Senate years, according to Taxpayers for Common Sense. That doesn't include $78 million for projects that were national in scope and had been requested by many lawmakers. Sen. Obama halted all earmark requests in fiscal 2009.

It is difficult to compare Sen. Obama's earmark record with Gov. Palin's -- their states differ in size, for instance, and the two candidates play different roles in the process. . . .

Indeed, Senator Obama and Governor Palin do have different roles to play with respect to earmarks, while Senators Obama and McCain play quite the same roles with respect to earmarks.

The practice of earmarking is a Congressional practice. Both Senator Obama and Senator McCain are members of Congress, and therefore both Senator Obama and Senator McCain can participate in the corrupt practice of Congressional earmarking. In stark contrast, Governor Palin is not a member of Congress, and therefore Governor Palin cannot choose to engage in the corrupt practice of Congressional earmarking.

Why do I say Congressional earmarking is corruption? In case you haven't been paying close attention to the scandal that is Congressional earmarking consider the following explanation from an article at Harpers online:

Only later, after the approved bill had been shuffled off to the President for signature, could lawmakers and laymen alike peruse its contents in earnest. Scattered throughout the bill were hundreds of hastily inserted pages of “earmarks,” or allocations for local projects that are tucked into federal budgets. As approved at the November 17 appropriations meeting, the Foreign Operations bill had contained a mere nine earmarks. The omnibus measure, which was completed after two feverish days of work, allocated money for 11,772 separate earmarks. There was $100,000 for goat-meat research in Texas, $549,000 for “Future Foods” development in Illinois, $569,000 for “Cool Season Legume Research” in Idaho and Washington, $63,000 for a program to combat noxious weeds in the desert Southwest, $175,000 for obesity research in Texas. In the end, the bill’s earmarks were worth a combined total of nearly $16 billion—a figure almost as large as the annual budget of the Department of Agriculture and roughly twice that of the Environmental Protection Agency. It was the biggest single piece of pork-barrel legislation in American history.

Of who added these grants, no public record exists. Except in rare cases, members of Congress will refuse to discuss their involvement in establishing earmarks, and the appropriations committees have a blanket rule against commenting. Often it is difficult to discern even who is receiving the funds: earmarks are itemized in bills but generally without disclosure of the direct recipient—just a dollar amount, destination, and broad purpose. Indeed, in the matter of the $16 billion burglary, and the similar acts of mass theft plotted for this year, the only certainty seems to be this: that lawmakers and lobbyists collude to conceal, to the utmost extent possible, their actions from the American taxpayer, who serves as the ultimate benefactor to their chronic bouts of generosity.

What do members of Congress want to hide when it comes to the practice of earmarking? Their corruption of course. Please allow me to quote myself so that I might try to drive the point home:

It's kind of hard for me to imagine that our Constitution is consistent with the practice of earmarks. It is certainly true that the Constitution grants Congress the power to tax and spend on programs consistent with the enumerated powers of Congress. But this is a power of Congress and not a power granted to each individual member of Congress. Earmarks allow Congressman X or Senator Y to say that project Z back home, which is the brain child of Mr. K (a friend? neighbor? contributor?), will get money from taxpayers all across the country.

Individual members of Congress have been allowed the opportunity to individually use the government's power to tax in order to pay friends, family, favored political supporters, and maybe even themselves on at least some occasions. That's corruption, and if it wasn't corruption then as a member of Congress you would want your constituents to know the many ways in which you've been bringing back home the Congressional bacon.

As a matter of Senators versus Governors, Governors simply cannot choose to make a Congressional earmark, nor can they choose to hide their earmarks from public review. Actually I can imagine that the so-called "earmark" requests of Governor Palin arrived in Washington on official Governor of Alaska letterhead. In contrast, the part in the earmarking process played by individual members of Congress not only does not appear on their official letterhead, but the earmarks themselves do not appear in written form in legislation and often there is meant to be no official and public way to tie an earmark to the member of Congress who makes it.

So, how do Senators Obama and McCain stack up with respect to earmark corruption? Since I've been following this scandal I know that Senator McCain has fought in the Senate to end the practice. While I've not followed Senator Obama closely on this issue, my impression is that he did not fight against the practice in the past.

With respect to the authors of the Wall Street Journal article, they seem to me to have made little effort to help the reader understand the corruption of earmarks and the role in earmarks played by Senators versus Governors. Does this reflect ignorance or bias?

[Hat Tip: Instapundit]

Wits To Prosper

Deirdre McCloskey in THE BOURGEOIS VIRTUES:

"The real danger comes from assaults on the human capital that made land scarcity irrelevant in the first place. We can pollute Lake Erie. In fact, we did. During the 1960s every environmentalist declared with angry assurance that Erie was biologically dead forever, kaput, finite, over. And yet in the 1990s we can bring it back for fishing and swimming, and did, if we have our wits about us. . . . . The modern world is different from a zero-sum world, which Malthus theorized just as it was disappearing forever. . . .If we have our wits about us. Responding to the real danger threatening our future, I argue, requires attention to human freedom. It is human freedom which has given us the wits to prosper." (34-35)

I have not yet read her entire book, but I think the first chapter is a marvelous defense of capitalism and freedom.

Taxing The Wealthy

We hear pretty often in politics these days about "tax cuts for the wealthy" and about taxing the wealthy because they can afford to pay. The underlying assumption of those who speak of such things seems to be that reducing taxes on the wealthy would surely not be in the interest of those who aren't wealthy. Perhaps there is something to be learned from Ludwig von Mises on such issues:

"Popular opinion is inclined to believe that the taxing away of huge incomes does not concern the less wealthy classes. This is a fallacy. The recipients of higher incomes usually consume a smaller proportion of their incomes and save and invest a larger part than the less wealthy. And it is only through saving that capital is created. Only that part of income that is not consumed can be accumulated as capital. By making the higher incomes pay a larger share of the public expenditures than lower inncomes, one impedes the operation of capital and eliminates the tendency, which prevails in a society with increasing capital, to increase the marginal productivity of labor and therefore to raise wages." [Ludwig von Mises, Interventionism, p. 51]

Friedman Says -- Innovation Policy Please

THOMAS FRIEDMAN:

"What I found missing in both conventions was a sense of priorities. Both Barack Obama and John McCain offered a list of good things they plan to do as president, but, since you can’t do everything, where’s the focus going to be?

That focus needs to be on strengthening our capacity for innovation — our most important competitive advantage. If we can’t remain the most innovative country in the world, we are not going to have $1 billion to toss at either the country Georgia or the state of Georgia.

While we still have enormous innovative energy bubbling up from the American people, it is not being supported and nurtured as needed in today’s supercompetitive world. Right now, we feel like a country in a very slow decline — in infrastructure, basic research and education — just slow enough to lull us into thinking that we have all the time and money to play around in Tbilisi, Georgia, more than Atlanta, Georgia."

Both candidates are now talking about "change" as a center point in their campaigns. It seems to me they don't want to be too explicit about the changes they would like to see happen. Still Senator McCain seems to be saying that he specifically wants to change the way Congress is corrupt with respect to earmarks. I would like to see the corrupt practice of earmarking ended.

Senator Obama's "change" most often seems to me just about changing the political party that claims the occupant of the White House. And, when Senator Obama talks about possible changes in policy, then I start to get a bit concerned because of the issue discussed in my last post. You see, I agree with Friedman that it would be good if the policies of the next President were good for innovation and entrepreneurship in the United States. Unfortunately, in my view, the very liberal policies Senator Obama has voted for in the past tend to be the sorts of policies that reduce innovation and entrepreneurship over time.

Instead of turning to Washington and government policies for change, perhaps we would do well to realize that change happens all the time in our lives and in our system of political economy. Sometimes the change is not so good, but most often the economic changes in a system of political economy like ours have been, over time, good for our standard of living. Over time, the changes that have allowed us all to enjoy greater prosperity are the changes that follow from innovation and entrepreneurship. And, of course, the innovation and entrepreneurship flow from the private sector and capitalism, not from the interventionist public policies of Congress and the Presidency. Senator McCain may understand this. Senator Obama's past suggests he likely does not understand this.

Obama Searching For The Median

VICTOR DAVIS HANSON:

"It is interesting how Obama has been evolving toward McCain’s positions rather than vice versa. Take Iran. At first, to Obama it posed little threat; now it is a danger large indeed—as McCain insisted all along. Obama used to ridicule the surge and claim it had failed; now he assures us that it has worked beyond our wildest dreams. Obama was opposed to oil drilling, and was silent about coal and nuclear power. Now suddenly he has dropped mention of inflating our tires, and is referring to oil, gas, coal, and nuclear production as legitimate means to wean ourselves off foreign oil. In political terms, all this is wise, since voters ultimately want to be reassured about centrist positions rather than worry over consistency. As Anbar quiets and we leave, expect him to suggest his pressure and criticism were responsible for the Iraqi government’s turn-about.

On matters like abortion, capital punishment, gun control and FISA, Obama again moves closer to McCain rather than vice versa. Apparently, he realizes that no northern Democratic liberal has been elected since JFK, nearly a half-century ago—an amazing fact in and of itself—and so has to follow the Bill Clinton centrist route, which can be accomplished by a variety of measures."

It is interesting, and it does seem to be happening. The simple voting model in economics that says the preferences of the median voter will determine the outcome of an election seems to apply in this case.

It has been observed that Senator Obama has the most liberal voting record in the Senate, and then he picked the 3rd most liberal senator in Senator Biden to join him on the ticket. Unless the median voter preferences in the country are very liberal, it would seem that Senator Obama has quite a ways to go to get to the median. Mr. Hanson's observations suggest that even Senator Obama recognizes that his past policy preferences aren't likely to capture the median voter's preferences.

Now I have to wonder if Senator Obama is going to be successful in his search to appeal to the median voter. Will voters decide that his past policy preferences are his true policy preferences? Or will voters decide that what he says now actually reflects his true policy preferences?

The Real Economic Scorecard

ROBERT SAMUELSON takes a look at the economy:

"Just last week, the Census Bureau released its annual study of household incomes, poverty and health insurance -- often called the nation's 'economic report card.' Its hard numbers seemed to confirm how many Americans feel. Sure, we're prosperous, but prosperity is fraying. Except for the rich, living standards are stagnant. Poverty is up; health insurance coverage is down. Naturally, both Barack Obama and John McCain seized upon the report to claim that their policies would restore progress.

Hold it.

Though echoed by policy wonks, pundits and politicians -- last week, Bill Clinton -- the conventional wisdom is wrong or, at least, misleading. Here's a more accurate assessment. For most Americans, living standards are increasing, albeit slowly, over any meaningful period. But rising health spending is eroding take-home pay, and immigrants are boosting both poverty and the lack of health insurance. Unless we control health spending and immigration, the economic report card will continue to disappoint. Unfortunately, neither Obama nor McCain seriously addresses these problems."

Samuelson makes sense to me. He specifically suggests three reasons why the "conventional wisdom" of the politicians paints an inaccurate picture. One of these reasons I think we should pay particular attention to:

Low-skilled immigrants, concentrated among Hispanics, outnumber the high-skilled. They drag down median incomes and raise poverty and the number of uninsured. One way to filter out the effect on income is to examine groups with few immigrants or their American-born children. Consider non-Hispanic white families. From 1997 to 2007, their median incomes rose about $6,000, to $69,937, a gain of about 9 percent. For black families, the increase was also about 9 percent, though only to $40,222. Again, not stagnation.

Immigration's effects on poverty and health insurance coverage are greater. Since 1990, Hispanics numerically account for all the increase in the number of officially poor. Similarly, immigrants represented 55 percent of the increase of the uninsured from 1994 to 2006, says the Employee Benefit Research Institute. Many unskilled workers can't get well-paid jobs with insurance.

Perhaps another way of putting his point is that the country is effectively importing poverty. It strikes me as a bit odd for public policy to be to import poverty while at the same time our politicians get on the stump and say they will create new government programs to end poverty. It seems that much of the recent "measured" increase in poverty could be "cured" by changing immigration policy.

But perhaps there is another, more ironic, point to consider. The conventional "wisdom" is that the economy is struggling through a bad time. Perhaps. But, the idea that the country is importing poverty suggests there is a bigger picture and a larger truth. Those who come to this country, whether legally or illegally, do so because they expect to be able to become better off here than they can be if they stay where they come from. Not only is the country importing poverty, but in doing so the country's economy provides the means by which many people are escaping even worse poverty. The economy of this country is not only able to import poverty but it is able to improve the lives of those our census bureau "measures" to be in poverty. Isn't it ironic that even in times of a struggling economy in this country, the country as a whole is still an "engine" and the means by which so many do better for themselves.

While it seems ironic, perhaps there is a serious danger lurking in our politics these days. If we misunderstand the economic picture, especially the larger truth of our economy, then it becomes more likely that the public policies that will follow this election cycle will impede and diminish the ability of our economy to continue to be the engine by which so many prosper.

Candidates & The Court

Pastor Rick Warren interviewed the presidential candidates on Saturday. He asked each senator which Supreme Court Justice he would not have nominated. Here are Senator Obama's views:

"WARREN: OK. The courts. Let me ask it this way. Which existing Supreme Court justice would you not have nominated?

OBAMA: That's a good one. That's a good one. I would not have nominated Clarence Thomas. [ applause ] I don't think that he -- I don't think that he was as strong enough jurist or legal thinker at the time for that elevation, setting aside the fact that I profoundly disagree with his interpretations of a lot of the Constitution. I would not nominate Justice Scalia, although I don't think there's any doubt about his intellectual brilliance, because he and I just disagree. He taught at the University of Chicago, as did I in the law school.

WARREN: How about John Roberts?

OBAMA: John Roberts, I have to say was a tougher question only because I find him to be a very compelling person, you know, in conversation individually. He's clearly smart, very thoughtful. I will tell you that how I've seen him operate since he went to the bench confirms the suspicions that I had and the reason that I voted against him, and I'll give you one very specific instance and this is not a stump speech.

WARREN: All right.

OBAMA: I think one of the -

WARREN: I think --

OBAMA: Right, exactly. I'm getting the cues. I'm getting the cues. One of the most important jobs of, I believe the Supreme Court is to guard against the encroachment of the executive branch on the other, the power of the other branches.

WARREN: OK.

OBAMA: And I think that he has been a little bit too willing and eager to give an administration, whether it's mine or George Bush's, more power than I think the Constitution originally intended."

So, Senator Obama seems to disagree with the constitutional interpretations of Justices Thomas, Scalia, and Roberts. How about Senator McCain:

[WARREN:] "The first one is on the courts. Which existing Supreme Court Justices would you not have nominated?

MCCAIN: With all due respect, Justice Ginsburg, Justice Breyer, Justice Souter, and Justice Stephens.

WARREN: Why? Tell me why.

MCCAIN: Well, I think that the president of the United States has incredible responsibility in nominating people to the United States Supreme Court. They are lifetime positions, as well as the federal bench. There will be two or maybe three vacancies. This nomination should be based on the criteria of proven record, of strictly adhering to the Constitution of the United States of America and not legislating from the bench. Some of the worst damage has been done by legislating from the bench. (APPLAUSE).

And by the way, Justices Alito and Roberts are two of my most recent favorites, by the way. They really are. They are very fine. (LAUGHTER). And I'm proud of President Bush for nominating them."

Senator McCain seems to disagree with the constitutional interpretations of Justices Ginsberg, Breyer, Souter, and Stephens.

In my view the Constitution defines a limited national government and as written it seems to me to protect individual economic liberty. The opinions of Justices Scalia, Thomas, Roberts and Alito are mostly consistent with this view, while the opinions of Justices Ginsberg, Breyer, Souter, and Stephens are inconsistent with this view. I agree with McCain's answer.

I also must mention one pet peeve of mine which comes up in Senator Obama's answer:

". . . more power than I think the Constitution originally intended."

I don't believe a piece of paper can have intentions.

Prosperity & Its Discontents

JONAH GOLDBERG ON CAPITALISM and prosperity:

"Capitalism is the greatest system ever created for alleviating general human misery, and yet it breeds ingratitude.

People ask, “Why is there poverty in the world?” It’s a silly question. Poverty is the default human condition. It is the factory preset of this mortal coil. As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger, and pain, and he died very young, either by violence or disease.

The interesting question isn’t “Why is there poverty?” It’s “Why is there wealth?” Or: “Why is there prosperity here but not there?”

At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own."

I like his point about the "default position." Looking over the course of world economic history, the important question does seem to be: Why do some countries enjoy great prosperity while others don't? It seems to me the answer to this question has to involve the idea that the for what ever reason the prosperous countries have governments sufficiently limited in scope and sufficiently attentive to protecting individual economic liberty. Or, in other words, what Goldberg says in his last paragraph above.

Greenspan's View

ALAN GREENSPAN'S WISDOM:

"The economic edifice – market capitalism – that has fostered this expansion is now being pilloried for the pause and partial retrenchment. The cause of our economic despair, however, is human nature’s propensity to sway from fear to euphoria and back, a condition that no economic paradigm has proved capable of suppressing without severe hardship. Regulation, the alleged effective solution to today’s crisis, has never been able to eliminate history’s crises.

[ . . . ]

We may not easily confront or accept the price dynamics of home and equity prices, but we can fend off cries of political despair which counsel the containment of competitive markets. It is essential that we do so. The remarkably strong performance of the world economy since the near universal adoption of market capitalism is testament to the benefits of increasing economic flexibility.

It has become hard for democratic societies accustomed to prosperity to see it as anything other than the result of their deft political management. In reality, the past decade has seen mounting global forces (the international version of Adam Smith’s invisible hand) quietly displacing government control of economic affairs. Since early this decade, central banks have had to cede control of long-term interest rates to global market forces. Previously heavily controlled economies – such as China, Russia and India – have embraced competitive markets in lieu of bureaucratic edict. The danger is that some governments, bedevilled by emerging inflationary forces, will endeavour to reassert their grip on economic affairs. If that becomes widespread, globalisation could reverse – at awesome cost."

Obama Promises Energy

SENATOR OBAMA SPOKE ABOUT new energy for America today:

"If I am President, I will immediately direct the full resources of the federal government and the full energy of the private sector to a single, overarching goal – in ten years, we will eliminate the need for oil from the entire Middle East and Venezuela. To do this, we will invest $150 billion over the next ten years and leverage billions more in private capital to build a new energy economy that harnesses American energy and creates five million new American jobs."

Oh dear, I don't think I like the sounds of this. Notice first that Senator Obama promises, if President, to direct the full energy of the private sector. Oh my, I wonder what the Senator has been reading to think that he can direct the full energy of the private sector? If the Senator, as President, could direct the full energy of the private sector toward anything, then would there be a private sector?

Quick get out your copy of the Constitution, and see if the President has the constitutional power to direct the full energy of the private sector. Nope, I can't find this power listed there, can you?

So, what do you suppose he means when he says "the full energy of the private sector?" The private sector encompasses an awful lot of stuff, including resources directed to producing homes, schooling, restaurants, baseball bats, golf clubs, tennis shoes, cell phones, and of course this list has to be enormously long. Does he really want to direct the full energy of the private sector to just one goal?

I must say, I see such a campaign promise to reveal the Senator as someone who may well understand virtually nothing of "the basic principles upon which this civilization was built."

And, then of course, even though I think he has taught constitutional law, he may not have consulted his copy of the constitution lately. Because the second thing I note is that he promises to direct the full resources of the federal government to his one favorite goal. Again, I'm not liking the sounds of this. I believe a great deal of the power that will be necessary to accomplish directing the full resources of the federal government has to be power that is, as a matter of our constitution, the power of Congress.

Now, this is starting to sound a bit familiar to me. I can't quite pull from my memory where I've heard this sort of thing done before. Hmmm. Wait a minute, something is coming to me. Yep, I've got it now. President Chavez of Venezuela, didn't he decide to essentially become the government so he could direct the full resources of the government to his purposes? And, didn't President Chavez decide to "nationalize" oil so that he could direct the full energy of what was a private oil sector in the economy?

But of course, there is still more in the one paragraph of promises quoted above. When the Senator says "we will invest" I wonder who the "we" is? I'm afraid he is not talking about investing his own money or the money of his family or even the money of his campaign. I'm afraid he's talking about investing some of the money I will earn over the next 10 years. Oh my, the Senator and his friends in Washington already have plans for "investing" a significant part of the money I will earn over the next 10 years for social security checks and medicare payments for the retired (i.e., those no longer earning an income).

Of course, the President doesn't have the power to tax, and the President doesn't have the power to create a budget for the federal government. So, maybe the President has already talked this over with Congress, and the "we" is both the President and the Congress. Or, maybe the Senator is simply making a grand promise he well knows he cannot keep by his own actions alone.

Or, maybe the Senator and his friends have some pretty grand plans for our government that are quite inconsistent with "the basic principles upon which this civilization was built."

And, I haven't even noted his reference to "leverage" billions in private capital. Enough is enough! At least for now.

What If Iraq Works?

Victor Davis Hanson considers the future of power & prosperity in Iraq:

"Iraq could still degenerate into one of those models. But for now, Iraq -- with an elected government and free press -- is not investing its wealth in subsidizing terrorists outside its borders, spreading abroad fundamentalist madrassas, building centrifuges or allowing a few thousand royal first cousins to squander its oil profits.

Iraq for the last 20 years was the worst place in the Middle East. The irony is that it may now have the most promising future in the entire region."

Energy Conservation

Be a patriot and check your tires daily.

Obama Believes Rational Ignorance

ANN ALTHOUSE considers Senator Obama's inconsistency:

"Does he think we are idiots?"

Just another illustration of a politician assuming voters are rationally ignorant, eh?

On Obama's Sense Of Patriotism

Senator Obama's speech on patriotism includes:

As I got older, that gut instinct - that America is the greatest country on earth - would survive my growing awareness of our nation's imperfections: it's ongoing racial strife; the perversion of our political system laid bare during the Watergate hearings; the wrenching poverty of the Mississippi Delta and the hills of Appalachia. Not only because, in my mind, the joys of American life and culture, its vitality, its variety and its freedom, always outweighed its imperfections, but because I learned that what makes America great has never been its perfection but the belief that it can be made better. I came to understand that our revolution was waged for the sake of that belief - that we could be governed by laws, not men; that we could be equal in the eyes of those laws; that we could be free to say what we want and assemble with whomever we want and worship as we please; that we could have the right to pursue our individual dreams but the obligation to help our fellow citizens pursue theirs.

Unfortunately, the Senator's view seems not to include economic liberty in the things he values. I suspect the men and women of our founding period were much more comfortable believing with John Locke that the endowment of individual liberty included the ownership of the fruit of our labor than they would be believing with Senator Obama today that there is an obligation to others that should be enforced through a government.

The Senator finds patriotism in holding a commitment to ideals:

That is why, for me, patriotism is always more than just loyalty to a place on a map or a certain kind of people. Instead, it is also loyalty to America's ideals - ideals for which anyone can sacrifice, or defend, or give their last full measure of devotion. I believe it is this loyalty that allows a country teeming with different races and ethnicities, religions and customs, to come together as one. It is the application of these ideals that separate us from Zimbabwe, where the opposition party and their supporters have been silently hunted, tortured or killed; or Burma, where tens of thousands continue to struggle for basic food and shelter in the wake of a monstrous storm because a military junta fears opening up the country to outsiders; or Iraq, where despite the heroic efforts of our military, and the courage of many ordinary Iraqis, even limited cooperation between various factions remains far too elusive.

I believe those who attack America's flaws without acknowledging the singular greatness of our ideals, and their proven capacity to inspire a better world, do not truly understand America. [emphasis mine]

Given the Senator's interest in cooperation and understanding, perhaps it is also unfortunate that the Senator ignores one of the most important ideals for the success of our system of political economy. Specifically, his view of the ideals important to this country seem to neglect (perhaps avoid) the obvious idea of a system of free markets.

Perhaps if the Senator becomes president I will have my own opportunity to be a patriot:

We may hope that our leaders and our government stand up for our ideals, and there are many times in our history when that's occurred. But when our laws, our leaders or our government are out of alignment with our ideals, then the dissent of ordinary Americans may prove to be one of the truest expression of patriotism. . . . Recognizing a wrong being committed in this country's name; insisting that we deliver on the promise of our Constitution - these are the acts of patriots, men and women who are defending that which is best in America. . . .

I would like to insist that our elected leaders pay much more attention to our Constitution. Our Constitution is supposed to be a constitution for a limited government, one which has only the powers specifically enumerated in the constitution itself. If those politicians in Congress and in the office of the President defended the Constitution, then government would be much, much smaller and markets would be much, much more free. If the Senator's speech on patriotism included an emphasis on economic liberty, an emphasis perhaps on freeing our markets, then I would think the Senator was indeed a patriot to the ideals on which our country was founded. Because the ideal of economic liberty seems no where to be found in the Senator's speech on patriotism, if he is elected I suspect I will frequently get my chance to be a patriot by pointing out that he and his political colleagues are not delivering on the promise of our Constitution.

Senator Obama also speaks about what we should teach our children:

As we begin our fourth century as a nation, it is easy to take the extraordinary nature of America for granted. But it is our responsibility as Americans and as parents to instill that history in our children, both at home and at school. The loss of quality civic education from so many of our classrooms has left too many young Americans without the most basic knowledge of who our forefathers are, or what they did, or the significance of the founding documents that bear their names. Too many children are ignorant of the sheer effort, the risks and sacrifices made by previous generations, to ensure that this country survived war and depression; through the great struggles for civil, and social, and worker's rights.

It is up to us, then, to teach them. It is up to us to teach them that even though we have faced great challenges and made our share of mistakes, we have always been able to come together and make this nation stronger, and more prosperous, and more united, and more just. It is up to us to teach them that America has been a force for good in the world, and that other nations and other people have looked to us as the last, best hope of Earth. It is up to us to teach them that it is good to give back to one's community; that it is honorable to serve in the military; that it is vital to participate in our democracy and make our voices heard.

And it is up to us to teach our children a lesson that those of us in politics too often forget: that patriotism involves not only defending this country against external threat, but also working constantly to make America a better place for future generations.

Once again it seems to me the Senator's view of this country misses one of the most important reasons for success. Where in his list of things to teach is the value of economic liberty, free markets, and capitalism?

Good Taxes or Bad Taxes?

One of the economic ideas about public policy that comes from the concept of a corrective tax for a negative externality is that in choosing tax bases we should tax the "bad things" (e.g. pollution) while leaving the "good things" (e.g. income, savings, investment) untaxed. GREG LOPEZ has a different view:

My rejection in a nutshell: The knowledge of which things are good or bad, in which circumstances of time and place, and to what dollar amount, are beyond the reach of anyone including policymakers; but even absent the knowledge problem, the incentive problem ensures that the enacted policies would be diverted by compromise from what little we do happen to know of the public interest.

In short, Hayek and Buchanan trump Pigou.

[ Hat Tip: Peter Boettke ]

Oil Prices 101

MARTIN FELDSTEIN explains oil prices:

The relationship between future and current oil prices implies that an expected change in the future price of oil will have an immediate impact on the current price of oil.

Thus, when oil producers concluded that the demand for oil in China and some other countries will grow more rapidly in future years than they had previously expected, they inferred that the future price of oil would be higher than they had previously believed. They responded by reducing supply and raising the spot price enough to bring the expected price rise back to its initial rate.

Hence, with no change in the current demand for oil, the expectation of a greater future demand and a higher future price caused the current price to rise. Similarly, credible reports about the future decline of oil production in Russia and in Mexico implied a higher future global price of oil – and that also required an increase in the current oil price to maintain the initial expected rate of increase in the price of oil.

Once this relation is understood, it is easy to see how news stories, rumors and industry reports can cause substantial fluctuations in current prices – all without anything happening to current demand or supply.

Perhaps one interesting implication of this involves what we should make of all the talk about speculators. Someone who owns oil in the ground may be one of the so-called speculators. Such an oil owner who expects the future price of oil to be higher sees an incentive to keep barrels of oil in the ground today instead of bringing them up for sale today.

But Feldstein notes there can be good news to be found in understanding all of this about oil prices:

Now here is the good news. Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today's price of oil with policies that will have their physical impact on oil demand or supply only in the future.

There is also much talk today that Congress should get busy and end the moratorium on new off shore oil development (among other suggestions about new oil supplies). A frequently heard response is that such a policy change would have no effect because it would necessarily be many years before any oil from such new projects would reach the market. But such a policy change would imply a lower future price for oil and this would mean a lower oil price today.

So, if you would like lower oil and gasoline prices today, then take note that the politicians who are calling for policies that would increase U.S. oil supplies in the future are supporting your interests, and the politicians who want to continue to restrict new U.S. oil production are not.

Rational Irrationality Reviewed

THE POLITICAL ECONOMIST reviews The Myth of the Rational Voter:

"So, in closing, I think Caplan’s book will be regarded as a public choice classic that will be on university course reading lists for decades to come. Caplan provides the ground for a research agenda that can build on his particular conceptualisation of voter behaviour, and his suggestions for institutional improvement in mature democracies. I think there a lot in this book that classical liberals and libertarians would like, and be able to reflect upon. By all means, do yourself a favour and get it!"

This is a review worth reading, especially if you want to skip the book.

The Economy Is Booming

RALPH PETERS:

If current trend-lines continue, it may not be long before Baghdad is safer for Iraqi citizens than the Washington-Baltimore metroplex is for US citizens. Iraq's government is working, its economy is booming - and its military has driven the concentrations of terrorists and militia from every one of Iraq's major cities.

And our troops are coming home. Where's the failure?

Food for thought, eh? And, where can I go to see the evidence the economy is booming? I certainly suspect this is true because I've read several stories from Iraq of new businesses.

Court & Constitution

RANDY BARNETT on Heller:

So what larger lessons does Heller teach? First, the differing methods of interpretation employed by the majority and the dissent demonstrate why appointments to the Supreme Court are so important. In the future, we should be vetting Supreme Court nominees to see if they understand how Justice Scalia reasoned in Heller and if they are committed to doing the same.

We should also seek to get a majority of the Supreme Court to reconsider its previous decisions or "precedents" that are inconsistent with the original public meaning of the text. This shows why elections matter – especially presidential elections – and why we should vet our politicians to see if they appreciate how the Constitution ought to be interpreted.

It seems to me that both the Legislative and Executive branches of government will inherently (because of their natures) be threats to liberty. If we are to have a hope of a government for liberty, then I think it is important that the members of the Supreme Court see their role in our government as defenders of a constitution for individual liberty. It seems the Heller opinion is a good illustration of all of this.

Our Fearless Leaders

ISN'T CONGRESS GRAND:

Today marked a new low for the way congressional Democrats deal with national security. This morning, the House Permanent Select Committee on Intelligence and the House Permanent Select Committee on Energy Independence and Global Warming held a joint hearing on a "National Intelligence Assessment" on global climate change. This analysis was ordered by the Democratic Congress last year and was issued a few weeks ago. Some highlights (or low-lights) from the hearing:

1) In response to a question by Global Warming Committee member Greg Walden (R-OR), the Intelligence Community admitted they had "low to medium confidence" in the accuracy of this estimate because intelligence officers lack the expertise to write such an estimate (it was mostly contracted out to other organizations) and climate change science is so uncertain. As Walden started to ask about why an analysis of such low reliability was issued, Congressman Ed Markey (D-MA), the Global Warming Committee Chairman, cut him off and told him he was out of time even though Markey let all the previous Democrats speak substantially past their time limits.

2) Intelligence Committee Ranking Member Peter Hoekstra asked what intelligence was used for this estimate and whether intelligence collection requirements were prepared. National Intelligence Council Chairman Thomas Fingar said no clandestine intelligence was used and that intelligence officers extrapolated what would happen if the "mid-level estimates" by the UN's Intergovernmental Panel on Climate Change were correct. When Hoekstra asked why the U.S. Intelligence Community would write an major analysis of low to medium confidence that contained no intelligence, Fingar answered, "because you [Congress] told us to."

3) Hoekstra noted that intelligence assessments of high confidence have proven to be wrong and he wondered why an intelligence assessment of low to medium confidence would even be published. In an attempt to dispel the debate over confidence, Intelligence Committee member Congresswoman Anna Eshoo (D-CA) responded by noting that the 2002 Iraq WMD NIE had high confidence in its findings. Some Republicans thought Rep. Eshoo's statement actually made their case about the futility of issuing an intelligence assessment that intelligence officers cannot fully back.

O'Reilly & Economic Illiteracy

GLENN REYNOLDS:

"JEEZ, I'M WATCHING BILL O'REILLY TALK ABOUT OIL 'SPECULATORS' and he's making a fool of himself. He absolutely doesn't understand futures markets."

I remember a year or so ago when Mr. O'Reilly was beside himself that no one could tell him who it was that set the price of gasoline in the United States. Isn't economic illiteracy like a new virus or something? Can't we consider it a threat to our public health?

Our Present Comfort

VICTOR DAVIS HANSON:

"In our present comfort, Americans don't seem to understand nature. We believe that our climate-controlled homes, comfortable offices and easy air and car travel are just like grass or trees; apparently they should sprout up on their own for our benefit.

Americans also harp about the faults of prior generations. We would never make their blunders -- even as we don't seem to mind using the power plants, bridges and buildings that they handed down to us.

Finally, high technology and the good life have turned us into utopians, fussy perfectionists who demand heaven on earth. Anytime a sound proposal seems short of perfect, we consider it not good, rather than good enough.

Hamlet asked, 'To be, or not to be: that is the question.' In our growing shortages of infrastructure, food, fuel and water, we've already answered that: 'Not to be!'"

It often seems to me that our prosperity has led to much being taken for granted. You may want to read the entire piece by VDH. I think there is another take on some of the things VDH writes about. Some of the things he writes about remind me of Mancur Olson's The Logic of Collective Action and The Rise and Decline of Nations. Perhaps our system of political economy is once again in the grip of sclerosis.

Summer Reading

Peter Boettke suggests summer reading:

In my opinion, I told the fellows, the most important books they could read this summer are: Richard Epstein's Free Markets Under Seige, and W. H. Hutt's Politically Impossible? both published by IEA. Epstein emphasizes the low hanging fruit in public policy, and argues that if we just focused on the simple economic problems that politics gets wrong and get them right we would improve the plight of millions of people world wide --- lower tarrifs, lower taxes, cut back regulations, eliminate price and wage controls, etc. LOW HANGING FRUIT. There are complicated issues in economic public policy, but for 90% of the problems we face in the world it is the low hanging fruit issues that distort the world an harm the lives of so many. Think of the current food crisis and examine the rise of protectionist policies world-wide that is preventing the gains from trade from fixing it. LOW HANGING FRUIT.

Hutt, on the other hand, emphasizes that it is the economists responsibility to speak truth as they see it to power, and never to compromise their message. The simple reason is that if the economists water-downs his message, the politican will water-down even more in the policy process, and by the time the advice become actual policy it will be unrecognizable to the economist. Rather than the economic voice being given an hearing, it is completely muted by the economists own consent. NO SPEAK TRUTH TO POWER AND DAMN THE CONSEQUENCES IN TERMS OF YOUR POPULARITY WITHIN THE POLITICAL REALM.

Oil & Politics

Like oil and water, I think oil and politics don't mix.

Today there is WSJ commentary worth looking at regarding the assertion (by many politicians) that speculators are at fault for the recent increases in oil prices:

On Sunday, Barack Obama rolled out a proposal that will supposedly thwart market manipulation by "a few energy lobbyists and speculators." John McCain chimed in that Mr. Obama was merely following his lead; last week, the Republican denounced "some people on Wall Street" for "gaming the system." If there's a Congressman who isn't calling for his own crackdown, he's gone into witness protection. And sure enough, even this week's impromptu oil summit in Jeddah blamed "speculators" for high prices.

The futures market may be a convenient scapegoat, but it's simply a price discovery mechanism. Major energy consumers – refiners, airlines – buy and sell these contracts to lock in goods at a future price, as a hedge against volatility. Essentially, they're guesses about coming oil supply and demand, as well as the rate of inflation. The political theory is that such futures trading is creating a bubble in the spot market (i.e., oil purchased for immediate delivery) beyond oil fundamentals. Thus, $4 gas.

But there's no inherent reason to "bet" that commodities will go up rather than down. Bet wrong – place all your chips on red, say – and you lose. If a company purchases the future right to buy oil at $140 a barrel and it instead sells for $130, the option is worthless. Besides, somebody has to take the other side of any futures contract: Some are trying to predict where the price will go in the future, while the other side is attempting to sell its future price risk. But no one knows how things will end up.

Mr. McCain calls such exchanges "reckless wagering." But speculators – normally known as "traders" – are really managing the exposure risks of American businesses to higher oil prices. Traders not affiliated with major producers or consumers provide liquidity to the market. Without the second group, futures markets would be determined exclusively by commercial participants. Another word for this is a cartel.

What is important here is that "speculators" are taking risks by making guesses about the future. There is no inherent reason why we should expect a speculator's guesses to be right and thereby be rewarded by large profits. The guesses may be wrong and be rewarded by large losses. It is also important to note the idea that the futures market is a price discovery mechanism. The specific idea is that in the present situation it appears that many believe the price of oil is going to be higher in the future. Given politics here in the United States, and given the potential, at present, for conflicts around the world this might well still be a very good guess.

Consider the finish to the WSJ commentary:

On the other hand, inflation does lead to a misallocation of resources, so it's not surprising that the Federal Reserve's weak dollar policy has driven investors to commodities to protect themselves. Loose monetary policy has caused price jumps across nearly all commodities, including surges in grains and precious and base metals. The Fed's rate-cut bender is the most important reason oil is up so sharply since last August.

The other major factor is supply and demand, as prosaic as that might seem amid today's political agitation. Energy consumption is surging in China and India, and global supply is not growing fast enough to keep up. Congress could do something useful if it opened up America's vast natural resources, which are blocked by environmentalist romanticism. But then, it's so much easier to shoot the price messengers.

The simple supply and demand view of a market should be helpful to us when wondering why oil prices are increasing. The price of oil, as well the price of any good or service, will increase if there is an increase in demand, if there is a decrease in supply, or both an increase in demand and a decrease in supply. The last two paragraphs to the WSJ commentary suggest reason to believe that both demand is increasing and supply is decreasing (at least relative to what it could be).

U.S. oil companies could be increasing supplies over time and into the future, but it seems our national politics, at least up to now, prefers to restrict production of oil off-shore, on-shore on public lands (ANWR), and from oil shales. The oil speculators don't make these sorts of political choices, but they can see these choices and guess that oil prices will be even higher in the future. At least some part of the oil price increases seem to me to involve U.S. public policies. Of course, our national politicians are responsible for these policies. As I think I've seen happen often in the past, when the politicians are themselves the culprits with respect to situations the public doesn't like, the politicians rush to the microphones and to the public meetings to claim it is someone else's fault.

Increase supply, of oil or any other good or service, and be assured the price will be lower than would otherwise be the case.

Obama's Illusions & Tyrannies

Have you wondered about Senator Obama's record of accomplishments? Have you assumed his record must be signficant since, after all, he will be his party's nominee for President? HERE IS A SHORT ESSAY that explores Senator Obama's record. This is how the essay ends:

Finally, there is his oratorical skill. Much of Obama’s lofty message of unity and hope really came from campaign consultant David Axelrod, who “long ago hatched the idea that Democrats’ campaigns should revolve more around personality than policy.” Indeed, much of the rhetoric was already test-driven in 2006 by one of Axelrod’s other clients, Gov. Deval Patrick of Massachusetts. Not that such themes are in any way unique to American presidential politics, as demonstrated by Bill “The Man from Hope” Clinton and George W. “Uniter, not a Divider” Bush.

As I have repeatedly noted here at pw, the candidacies of Obama and John McCain are driven by voters pursuing a mirage of changeyness where bipartisanship reigns and the “moneyed special interests” vanish. And we should Hope that it is a mirage:

The appeal is vague precisely because it is illusory… The Framers of the US Constitution recognized – as James Madison explained in Federalist No. 10 – that factions are one of the costs of liberty. There is nothing high-minded about selling the notion that faction can be magically eliminated — a notion that is equal parts snake oil and tyranny.

Again, there is not much to admire in either snake oil, tyranny or flowery speeches trying to sell either. Moreover, remove Obama from a TelePrompTer and he is every bit the gaffer as any other average politician, though few have had the audacity to base their foreign policy on a debate gaffe.

In sum, Barack Obama’s record, judgment and message are at best entirely undistinguished in the field of presidential politics. At worst, we have Axelrod’s campaign of personality attracting a cult of followers so creepy that even many Obama backers are put off by it, to a man who admits he is a “blank screen,” with a message that is either illusory or tyrannical. It is in those people that I find little to admire.

So, after reading the essay, what do you think, does the success of the Senator's campaign seem more the result of RATIONAL IGNORANCE or RATIONAL IRRATIONALITY? Or, perhaps it is the "perfect storm" of both?

With regard to the Senator's message being either "illusory or tyrannical," I certainly see much in the Senator's policy positions that fit the "tryrannical," e.g. his idea that he will make the oil companies invest their profits in the way he sees fit.

There would be less to be concerned about with respect to this presidential election if only there were at least 5 Supreme Court Justices who understood, and agreed with, James Madison's Federalist #10. If there were, then it would be far more likely that our constitution would be read as constituting a constrained and limited government of only enumerated powers, and the tyranny in the politics of presidential policies would be far less likely to be realized during the next presidential administration.

Zimbabwe

I've chanced across a very interesting book, WHEN A CROCODILE EATS THE SUN which is written by Peter Godwin. The book is Mr. Godwin's memoir of Africa and specifically Zimbabwe. Here is an excerpt from Chapter 5 which is titled April 2000.

They are a good-looking middle-aged couple, tanned and fit from an outdoor life, surprisingly calm and considered, given their current situation. We sit down at the dining table for lunch, and Jenny reaches to tinkle the bell to summon the cook, and then remembers it is not there. She apologizes for the second-best cutlery we are using too.

Rob slices the rare roast beef. "This place was mostly unpopulated when we arrived," he says. "There were tsetse flies, so no cattle could survive. No cattle, so no people. Whites used to come here to hunt lion, that's all."

His grandfather came out to Africa as a veterinarian with the British cavalry fighting the Boer War. His father served in the police force of old colonial Bechuanaland (now Botswana). Rob's uncle wrote the Kenyan constitution.

[ . . . ]

But as we drive through it, most of the land -- once some of the most productive in the country -- stands empty of crops, choked with undergrowth. Farms lie abandoned, their buildings stripped of their tin roofs.

"Just look at it," says Webb in dismay. "It's such a terrific waste."

Webb shows me the Farm Development Trust, an old commercial farm converted into a tobacco training center by white farmers. More than a thousand black farmers pass through it every year taking courses to learn how to grow tobacco commercially. "Some of the farmers being trained there are those now invading us," he says. His wife choruses this hymn of despair. "This will never end. If they get more farms, in five years' time when our corn is ten feet tall and theirs is only two feet, they'll come again and say, 'We want your land.'"

Only now does Rob take me on a tour of his own farms -- he has three, combined into one unit. Here he grows coffee, paprika, wheat, sugarcane, soybeans, asparagus, tobacco. At his tall brick tobacco barns, workers are busy grading and packing leaves. "There's millions of dollars' worth of tobacco here," he says. "And they've warned me that they'll burn it all down if they lose the elections."

He employs 620 people, and, with their families, some two thousand live on the property. "We run an elementary school for the laborers' children and a fully staffed clinic."

Rob webb has tone to great lengths to stay on good terms with the ruling party as a political insurance policy for his business. . . .

But this was no use to him when a mob of a hundred people armed with pangas and rocks marched up the drive chanting hostile slogans and beating tom-toms and dancing the toyi-toyi, an African war dance.

"They demanded to speak to me, and when I came down, they shouted, 'We have come to take your land -- that is what we have been told to do.'"

They pegged land claims on his soybean fields, which were just about to be harvested, and demanded they be plowed immediately. When Rob insisted on reaping his crop first, they tried to set fire to it: only the greenness of the shoots prevented it from catching. Now Webb is combine-harvesting day and night to salvage as much of the crop as he can.

[ . . . ]

The farm, a big business built up over decades, in on the verge of collapse. Webb is unable to plant winter wheat, unable to water his soy crop, unable to enter or leave his property without permission. His workers are scared and worried about their future. The occupiers spend much of their time drunk or stoned. . . .They live parasitically, depending on the farm for their survival even as they destroy it. . . .

"As far as I can see, they're nothing but little warlords," says Rob.

There are a few other stories like this, at least one which was deadly in nature, in this chapter on April 2000. One aspect of the stories is that government seems unable or unwilling to protect and enforce the private property rights which seem to me to have been integral to the economic development that was part and parcel of the successful farms. Perhaps government is even doing the telling to the people who are trying to take over the farms. These sorts of stories seem to epitomize an economy of predation, not an economy that will experience much prosperity.

Is this a recession and do we care?

JAMES HAMILTON POSTS some charts that make him bearish on the recession question. Here is one of his charts. Note the periods of recession are shown by the grey bars. You may want to check out his entire post.

Windfall Profits Tax

The Senate is debating S. 3044 today. This bill is called the Consumer-First Energy Act of 2008. Among other things, this bill would impose a "windfall profits tax." You can read the text of the bill for yourself by going here. So what is in the bill, and specifically what is this "windfall profits tax?"

`(a) In General- In addition to any other tax imposed under this title, there is hereby imposed on any applicable taxpayer an excise tax in an amount equal to 25 percent of the excess of--

`(1) the windfall profit of such taxpayer, over

`(2) the excess of--

`(A) the amount of the qualified investments of such applicable taxpayer for such taxable year, over

`(B) the average of the qualified investment of such applicable taxpayer for taxable years beginning during the 2002-2006 taxable year period.

`(b) Applicable Taxpayer- For purposes of this chapter, the term `applicable taxpayer' means any major integrated oil company (as defined in section 167(h)(5)(B))."

The Associated Press article on this includes:

With gasoline prices topping $4 a gallon, Senate Democrats want the government to grab some of the billions of dollars in profits being taken in by the major oil companies.

Senators were to vote Tuesday on whether to consider a windfall profits tax against the five largest U.S. oil companies and rescind $17 billion in tax breaks the companies expect to enjoy over the next decade.

"The oil companies need to know that there is a limit on how much profit they can take in this economy," said Sen. Richard Durbin of Illinois, the Senate's No. 3 Democrat, warning that if energy prices are not reined in "we're going to find ourselves in a deep recession."

So this is a bill that is supposed to be a response to the high prices for petroleum and gasoline. There has recently been quite a bit of political rhetoric from the Democrat presidential primary candidates who both said they support the idea of a windfall profits tax. Reuters reports that Senator Obama said this yesterday:

"I'll make oil companies like Exxon pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills,"

Before discussing what we could expect to be the result of imposing a windfall profits tax, just a couple of thoughts. First, Senator Durbin's comment in the Reuter's article just doesn't sound like economic liberty to me. The Senator's threat to use government's force to take some of the profits of 5 of the country's corporations makes our Congress appear to be quite a predator rather than a protector of individual liberty and freedom.

Second, just a picky little point about the Constitution and Senator Obama's claim that he will make oil companies pay. Mr. Obama cannot, on his own, make oil companies do anything, either as a member of the Senate or as President. The Constitution gives the power to tax to Congress, not to the Senate, and most certainly not to the President.

Now, what should we expect to be the result of imposing a windfall profits tax? To put this question in context, we should also ask why the prices of oil and gasoline have been increasing recently. There are probably several factors involved in explaining the recent price increases, but basic economic ideas suggest just a couple of general possibilities. Basically for a price to increase, other things constant, either the demand is increasing or the supply is decreasing, or both. With respect to the price of a barrel of oil, it seems to me that price is increasing both because demand is increasing (a good part of this is increasing demand from people and businesses in China and India) and because supply is decreasing or at least not increasing. With respect to the price of a gallon of gasoline, oil is an input into the production of gasoline, and we can expect an increase in the price of an production input to result in an increase in the price of the output, or the price of gasoline in this case.

Ordinarily, economics suggests to us that when profits are above "normal" in an industry that this is a signal or an incentive for businesses to increase supply. And, ordinarily, we would expect that over time, sometimes over a very short period of time, that the above "normal" profits would be bid away by new businesses and by increased supplies by existing businesses. Of course, all of this means that the existence of above "normal" profits can be expected to lead, over time, to increased supply and to a LOWER PRICE. In this case, we could expect above "normal" profits for oil suppliers and for gasoline suppliers to lead over time to lower prices both for oil and for gasoline as supplies for both increase.

But, the Senate, and perhaps then the House and even the President, will decide to intervene in all of this by imposing a "windfall profits" tax on U.S. oil producers. Will a "windfall profits" tax result in increased supplies and lower prices for oil and gasoline? This is not what I would expect to happen. Such a tax should decrease the incentive to produce new oil supplies if for no other reason than that such a tax would be a signal that there was less money to be made in oil production and this would lead to less effort to find new sources of oil and also to less effort to increase production from existing sources.

In other words, we should expect that imposing a "windfall profits" tax will result in higher prices for oil and for gasoline than would otherwise be the case. Wouldn't you like to see lower prices for oil and gasoline? If so, then you might want to support policies that would free producers of these products to respond with increased supplies over time.

There is perhaps a bit of irony in this last point. Congress has for some time now imposed moratoria on both new off shore oil production as well as the production of oil shale. If Congress ended these moratoria we would expect increased production of oil and this should lead to a lower price per barrel of oil which would of course then be expected to lead to a lower price per gallon of gasoline. In political terms, it seems to me the very politicians who support a windfall profits tax because of the "excess" profits due to a high price per barrel of oil are also, mostly, the politicians who support these moratoria on production. Is it ironic that the profits these politicians want to take are, at least in part, due to their own choice to restrict U.S. oil production below what it could, and would, be? Or, are they crazy? Or, do these politicians have another agenda that is promoted by decreased supplies and higher prices for oil and gasoline?

Where's My Summer Job

Kristen Lopez Eastlick:

Finals week is over; summer is here. And thanks to misguided politicians, your teenager is more likely to be sitting in front of the television than waiting tables or scooping ice cream.

This year, it’s harder than ever for teens to find a summer job. Researchers at Northeastern University described summer 2007 as “the worst in post-World War II history” for teen summer employment, and those same researchers say that 2008 is poised to be “even worse.”

[. . . ]

One of the prime reasons for this drastic employment drought is the mandated wage hikes that policymakers have forced down the throats of local businesses. Economic research has shown time and again that increasing the minimum wage destroys jobs for low-skilled workers while doing little to address poverty.

According to economist David Neumark of the University of California-Irvine for every 10 percent increase in the minimum wage, employment for high school dropouts and young black adults and teenagers falls by 8.5 percent. In the past 11 months alone, the United States minimum wage has increased by more than twice that amount.

Sad, eh? Demand curves, even demand curves for young summer employees have negative slopes.

Our fearless leaders in Washington are talking recession, they are concerned for the unemployed, and yet, they have also chosen public policy that makes more unemployed workers than would otherwise be the case. Oh, well, don't worry, be happy for those fearless leaders. Perhaps they know what a great job they have. They get to make policy that creates results they don't want only to be able to make more policy to fix the bad policy results they created earlier. There just always seems to be something to do in Washington. Especially since too few voters seem to understand the economic world.

Change & Media Bias Go Together?

Rasmussen Reports™:

"Just 17% of voters nationwide believe that most reporters try to offer unbiased coverage of election campaigns. A Rasmussen Reports national telephone survey found that four times as many—68%--believe most reporters try to help the candidate that they want to win.

The perception that reporters are advocates rather than observers is held by 82% of Republicans, 56% of Democrats, and 69% of voters not affiliated with either major party. The skepticism about reporters cuts across income, racial, gender, and age barriers."

What is a voter to do when he or she can't trust the media to provide unbiased reports? Well the voter can choose rational ignorance. Or, the voter can choose rational irrationality and simply believe what feels good. Especially if voters choose rational irrationality, I'm thinking a campaign of hope and change just might feel good to a lot of voters.

Adam Smith

HAPPY BIRTHDAY!!

McCain-Obama Townhalls

DRUDGE REPORTS that Senator McCain has asked Senator Obama to participate in townhall meetings before the Democrat convention:

I propose these town hall meetings be as free from the regimented trappings, rules and spectacle of formal debates as possible, and that we pledge to the American people we will not allow the idea to die on the negotiation table as our campaigns work out the details. I suggest we agree to participate in at least ten town halls once a week with the first on June 11 or 12 in New York City at Federal Hall until the week before the Democratic Convention begins at locations to be determined by our campaigns. Federal Hall is particularly fitting as it was the place where George Washington took the oath of office as our first President and the birthplace of American government hosting the first Congress, Supreme Court and Executive Branch offices. These town halls should be attended by an audience of between two to four hundred selected by an independent polling agency, could be sixty to ninety minutes in length, have very limited moderation by an independent local moderator, take blind questions from the audience selected by the moderator and allow for equally proportional time for answers by each of us. All of these are suggestions that can be finalized by our campaigns. What is important is that we commit to participate in these history making meetings to join in the higher level of discourse that Americans clearly would prefer.

It seems to me that such meetings might well offer a "higher level of discourse," at least when compared with the nature of the sound bit debates we are likely to get otherwise. But, why have such townhall meetings before the party conventions?

I wonder if this has anything to do with Senator McCain assuming that voters are rationally ignorant? I believe Senator Obama has a voting record as a Senator which makes him the most liberal member of the Senate since he has been in the Senate, and perhaps this voting record means Senator Obama will be the most liberal politician ever nominated by one of the major parties as a presidential candidate. Generally, the candidate for each party has to run in the primary campaign some distance from the median voter in the national election, and then after the nomination is gained each candidate has to find a way to move toward the center in the general election. Because most voters choose to be rationally ignorant, I suspect this process of moving either from the left or the right toward the center is usually not too difficult because there has often been some time between gaining sufficient votes in the primary and the actual nomination which opens the general election campaign. When September to November rolls around the rationally ignorant voters will probably have forgotton the speechs and policy positions taken by each candidate in the primaries. So, Senator Obama would, normally, have the next 2 months to choose how to reposition and recast himself as a moderate for the general election. If the Senators were to start holding townhall meetings next week, wouldn't there be a lot less opportunity to choose how you want to be redefined for the general election?

Oil Supply

ANTHONY EFFINGER WRITES ABOUT OIL in North Dakota:

John Bartelson, who smokes Marlboro Lights through fingers blackened with tractor grease, may look like an average wheat farmer. He isn't. He's one of North Dakota's new oil barons.

Every month, he gets a check for tens of thousands of dollars from a company in Houston called EOG Resources Inc., which drilled two oil wells on his land last year. He says the day his first royalty check arrived was one to remember.

``I smiled to beat hell, and I went to town and had a beer,'' Bartelson, 65, says.

His new wealth springs from the Bakken formation, a sprawling deposit of high-quality crude beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.

And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.

Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.

So, this is a story of supply and demand. The high oil prices and the increased profits for oil production certainly offer incentives to find and produce more oil. I guess some have said that they believe annual production of oil worldwide has peaked, but stories like this seem to offer a much different picture.

This is a fun story to read, so read the whole piece, especially if you are unhappy about the prices you find at the pump these days. Here is the finish to the piece:

. . . with crude trading above $125 a barrel, it'll be a long time before the rigs leave again, and John Bartelson is likely to be a wealthy man before they do.

Earmarks: Corruption Continues

WALL STREET JOURNAL COMMENTARY:

"Remember those Congressional pledges of earmark reform? Democrats are hoping you don't, as they try to pull a fast one and evade President Bush's pledge to block these special-interest spending projects slipped into legislation without scrutiny.

The battle is over the $601 billion defense authorization bill, which the House passed last week, 384-23. Earmarks are supposed to be included in the text of legislation. Instead, the Members have 'airdropped,' in Beltway parlance, a huge number of them into the conference report that accompanies the bill. And, to ensure that the money is spent on these dark-of-night additions, the Members have included language insisting that federal agencies do so.

This is a blatant attempt to override Mr. Bush's executive order earlier this year on earmarks. That order took direct aim at 'airdropped' earmarks on grounds that they lack the force of law. If Members think their projects are defensible, then put them into actual legislation and vote on them. But because this can be politically embarrassing – think 'bridge to nowhere' – Members prefer to slip their pork into the conference reports that offer instructions on implementation. These reports are written by staff members, aren't debated or voted on by Members, and aren't signed by the President."

The corruption is clear, i.e., money is being spent by individual members of Congress and the entire Congress is participating in hiding these expenditures. Congress, not individual members of Congress, has the constitutional power to make appropriations. Whether the Democrat party or the Republican party controls Congress, and even after an election which emphasized the corruption of earmarks as well as promises to end the practice, the corruption continues. But, perhaps the continuing corruption is worse now, because this Congress seems to have made even greater efforts to hide the earmarks from public view.

Why make promises to reform but then make greater efforts to hide the practice of earmarks? Probably because members of Congress assume, as public choice theory tends to assume, that voters are rationally ignorant. It seems that members of Congress think they can spend tax money on friends, political benefactors, family, and even themselves because voters rationally choose to remain largely ignorant about the politicians they elect.

I'm afraid there is little that can be done unless there is a return to the conceptual understanding of government as a limited government that is constitutionally constrained by specifically enumerated powers.

Gasoline Demand

With the recent concerns about increased oil prices, I've had numerous conversations with students and others about the demand for gasoline. Many have asserted that people simply can't drive less even when the price at the pump increases. Of course, my response is that the demand for gasoline has a negative slope, just like every other demand curve. I also tend to add that the last time gasoline prices were as high in real economic terms as they are today, the decrease in quantity demand was an elastic reponse to higher prices over a relatively short period of time. These pictures, which are REPORTED IN THE NY TIMES, fit well with my expectations about the demand for gasoline.

Michigan's Tax Elasticity

WSJ COMMENTARY on Michigan state government:

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be 'invested' in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales."

[ . . . ]

The tax hikes have done nothing but accelerate the departures of families and businesses. Michigan ranks fourth of the 50 states in declining home values, and these days about two families leave for every family that moves in. Making matters worse is that property taxes are continuing to rise by the rate of overall inflation, while home values fall. Michigan natives grumble that the only reason more people aren't blazing a path out of the state is they can't sell their homes. Research by former Comerica economist David Littmann finds that about the only industry still growing in Michigan is government. Ms. Granholm's $44.8 billion budget this year further fattened agency payrolls.

I don't like calling government an industry, but it is interesting to note that Michigan state government continues to grow even as people and businesses move from the state to greener pastures. Politicians and bureaucrats in state governments often seem to neglect the idea that people may well have a very elastic response to increases in the costs they face.

Maybe if government encroaches on liberty too much people will respond by taking their lives to other locales in which they can find just a bit more liberty.

Of Subsidies & Charity

ARNOLD KLING:

". . . I would argue that there is nothing morally wrong with receiving a subsidy, even from government. The moral corruption in government subsidies is not in the recipients, except insofar as they deliberately pressure legislators for money. The moral corruption is in the subsidizers, who are taking money involuntarily from A to give it to B."

I think this is an interesting point. There are people who are demanders of subsidies or gifts from others, and there are people who are suppliers of subsidies or gifts. When the suppliers respond by taking from their own pocketbooks, their charity is a good thing. But, when the suppliers respond by taking from the pocketbooks of others charity is not what is going on.

Drive Less

TIM HAAB writes about the high price of gas:

"The real question CNN should ask is: What can you do about $4 gas? There is only one answer. 'Drive Less'. You as a consumer have control over your own gas purchases and little over the market price. The choice to drive less may be uncomfortable, but all the whining, crying and shouting for the government to do something will only make the situation worse. Price controls, gas rationing, windfall profit taxes, gas tax holidays...are all bad policies that may make you (and politicians) happier in the short run but will make everyone miserable in the long run. Your solution to high gas prices is to adapt. Drive Less! If the market adjusts, all the better, you're saving even more money."

I guess he has heard of a demand curve. This is certainly the short run response because it is about the only way reduce consumption in the short run. Of course, in the long run, a person can respond to a higher gas price by purchasing a car that gets better gas mileage, or perhaps even by changing the location of his or her economic activities. There are already reports in the news of an increased demand for better gas mileage vehicles.

I'll Be Watching

This is well worth watching.